Nursing home care can be extremely expensive. According to the 2021 Genworth Cost of Care Survey, the median monthly cost of a private room in a nursing home is $9,034. That’s over $100,000 a year! And most people will need home nursing or something similar in old age: A study by the Urban Institute and the US Department of Health and Human Services found that 70% of Americans who reach l age 65 need long-term care for their remaining years.
But there are ways to cover some of these costs, as well as strategies that can help cover out-of-pocket costs. We’ll look at four ways to pay for nursing home care, some of which you can implement early in life to ensure a financially secure retirement. Consider working with a financial advisor if you want more personalized retirement and savings advice.
What government programs will cover
There are three government programs designed to insure and help cover medical expenses for Americans age 65 and older. Let’s see how each of these can help you pay for nursing home care.
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Health Insurance : Medicare generally does not pay for nursing home stays because it does not cover custodial care. Custodial care is defined as “unskilled personal care, such as helping with activities of daily living such as bathing, dressing, eating, lying down or getting up from a bed or chair, move around and use the bathroom”. Medicare will only cover nursing home care when you need more advanced medical care, such as regular injections that can only be given by a medical professional. Medicare has additional restrictions and limitations and should not be viewed as a means of paying for long-term care in a nursing home.
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Medicaid: According to the American Council on Aging, Medicaid will cover 100% of your nursing home care as long as you meet the program’s financial eligibility requirements. People generally must have low enough income and few financial resources to be eligible for Medicaid. States limit the amount of income you can earn while qualifying for Medicaid and generally place a $2,000 cap on the amount of money and other assets you can have (beyond the value of your home). ). In addition, the services must be deemed medically necessary by a physician.
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PACE: Some states offer an All-Inclusive Care for the Elderly (PACE) program, which is a joint Medicare-Medicaid program that can help those who need nursing home care. If you are eligible and there is a PACE program in your area, you can apply for care.
What specialized insurance will cover
Long-term care insurance is a fantastic option that can help pay for nursing home care if you don’t qualify for government programs. This product is intended to cover the exact type of care that often isn’t covered by Medicare — custodial care — as well as any specialized care or rehabilitation therapy you need.
Long-term care insurance isn’t cheap, but it can be much cheaper than paying out of pocket. The American Association for Long-Term Care Insurance found in its 2023 analysis that a 55-year-old man purchasing long-term care insurance with $165,000 in immediate benefits can expect to pay $900 per year. A woman in the same situation can expect to pay between $1,500 and $3,600.
How tax deductions can help
According to the IRS, you can deduct some or all of your retirement home expenses on your tax return. A tax deduction is a provision that allows part of your income not to be taxed. For example, if you earn $40,000 and qualify for a $5,000 tax deduction, you will only pay taxes on $35,000 of your income. While these tax provisions don’t necessarily help you pay for nursing home care up front, they can save you money afterward.
The IRS specifies that if you are in a nursing home primarily for medical reasons rather than custodial care, you can deduct the full cost. If you are in a nursing home primarily for non-medical reasons, you can deduct the cost of all medical care, but not the cost of services such as accommodation and meals. To determine the amount of your tax deduction, most taxpayers will simply need to total all of their allowable medical expenses, then subtract 7.5% from their adjusted gross income.
How to cover reimbursable expenses
Even if you have long-term care insurance or another plan to cover your nursing home care, you’ll still want to have cash on hand to fund uncovered expenses or unexpected costs. Anticipate these disbursements by creating a tax-efficient retirement account.
A good option is to open a Roth IRA to use for these costs. Because you’re funding a Roth IRA with after-tax money, you won’t be taxed when you withdraw the money as long as you’ve reached age 59½ and the account has been open for five years. And unlike a traditional IRA, you won’t be subject to required minimum distributions (RMDs) at a certain age, so the money can stay invested until you need it.
An annuity is another smart way to cover personal expenses or anything that insurance won’t cover. An annuity is an insurance product where you pay a certain amount in exchange for receiving payments at a later date. You can specify when you want payments to start, what schedule you want them to follow, and how much you want them to be. You can also purchase an annuity with a long-term care rider to help cover specific conditions that require medical attention.
Conclusion
Nursing home care is expensive, but there are ways to plan for it and programs that can help cover the cost. See how government programs can help you, review insurance options, and make sure you take advantage of medical expense tax deductions. Lately, set aside savings for costs that will not be covered by government programs or insurance.
Retirement Planning Tips
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Consider talking to a financial advisor about your options for preparing for the costs of long-term care. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three qualified financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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A related concern is the amount of life insurance you might need. SmartAsset’s Life Insurance Calculator will give you an estimate of how much life insurance you should have.
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